LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

California Coastal Commission (3720)

The California Coastal Commission, following its initial creation in 1972 by a voter initiative, was permanently established by the State Coastal Act of 1976. In general, the act seeks to protect the state's natural and scenic resources along California's coast. It also delineates a "coastal zone" running the length of California's coast, extending seaward to the state's territorial limit of three miles, and extending inland a varying width from 1,000 yards to several miles. The commission's primary responsibility is to implement the act's provisions. It is also the state's planning and management agency for the coastal zone. The commission's jurisdiction does not include the San Francisco Bay Area, where development is regulated by the San Francisco Bay Conservation and Development Commission.

The Coastal Commission has its headquarters in San Francisco and operates six regional offices throughout the coastal zone. The commission proposes expenditures totaling $14.5 million in 2004-05. This is a decrease of $384,000, or 3 percent, below estimated expenditures in the current year.

Stable Funding Source Needed for Commission's Permitting Functions

We recommend the enactment of legislation directing the California Coastal Commission to modify its permit fee schedule so that its permitting and enforcement costs are fully recovered from fees and other non-General Fund sources. This would result in General Fund savings of $5.8 million. We also recommend the enactment of legislation (1) deleting the current-law requirement that the commission's permit fee and penalty revenues be transferred to accounts administered by the State Coastal Conservancy and (2) establishing a special fund at the commission for the deposit of the commission's fee and penalty revenues. Finally, we recommend that the commission report prior to budget hearings on its projected permitting and enforcement workload for the budget year. (Reduce Item 3720-001-0001 by $5.8 million; Item 3760-001-0565 by $150,000; Item 3760-301-0593 by $500,000; and increase new special fund item by like amounts.)

Commission's Permitting Authority Over Coastal Development. The commission's core program activities include issuing and enforcing permits for coastal development. The commission retains this permitting authority in cases where a local government within the state's coastal zone does not have a local coastal plan (LCP) that has been certified by the commission. In jurisdictions with a certified LCP, coastal development permits are processed and issued by the local government, and are only seen by the commission if an appeal is filed on the basis that the permitted development conflicts with the Coastal Act.

General Fund Supports Most of Commission's Permitting and Enforcement Activities. The budget proposes about $7.5 million for the commission's permitting and enforcement activities in 2004-05. Of this amount, about $5.8 million is from the General Fund, with the balance from federal funds and reimbursements. The budget also projects that the commission will have permit fee revenues of $500,000 and penalty revenues of $150,000 in the budget year. However, as discussed below, none of these revenues are used to support the commission's permitting and enforcement activities.

Budget Reflects Program Reductions Over Last Few Years. The commission's proposed budget for 2004-05 reflects cumulative reductions totaling around $3 million (and 30 positions) made over the last three years. These reductions reflect the commission's reliance on the General Fund as its primary funding source and the consequences on the commission's budget when the General Fund condition is weakened. The commission indicates that these reductions have significantly slowed down the work of the commission, resulting in backlogs of permit reviews and enforcement-related actions that continue to build. In addition, the commission has had to reduce the level of technical assistance that it provides to permit applicants to ensure compliance with the Coastal Act and regulations.

Commission's Permit Fees Are Low Compared to Local Fees. Under current law, the commission is provided broad authority to assess reasonable permit fees. However, as indicated above, even if the permit fees collected by the commission were used to fund the commission's permit ting and enforcement activities, the fee revenues assessed at their current level would support only a small portion of these activities.

In addition, our review finds that the commission's current permit fees are set at levels far below the permit fees assessed by many local agencies for comparable development projects. For example, the commission's highest current permit fee is $20,000. This fee applies to large projects, including those with a development cost of over $5 million, major energy production facilities, and residential projects with at least 167 units. We find that many counties and cities in coastal areas assess permit fees up to a few million dollars for comparable development projects.

Current Law Requires Transfer of Commission's Permit Fee and Penalty Revenues. Under current law, permit fee revenues collected by the commission do not stay with the commission. Rather, all of the commission's permit fee revenues are transferred to the Coastal Access Account in the State Coastal Conservancy (SCC), to be used for the development and operation of coastal public access projects. Similarly, the commission's enforcement fine and penalty revenues are required to be transferred to the Violation Remediation Account in SCC, to be used for the general purposes of carrying out the Coastal Act.

Fees Should Fully Cover Permitting and Enforcement Costs. We think that fees levied on permittees/developers should, along with any other non-General Fund funding source, fully cover the commission's costs to issue and enforce permits. This is because there is a direct link between the activities carried out by the commission and those who directly benefit from them through their development actions. Doing so would be consistent with the Legislature's actions in requiring the costs of most other environmental regulatory programs, such as those protecting air and water quality, to be largely if not totally reimbursed through industry fees and assessments.

Recommend Legislation to Direct Revision of Fee Schedule. We therefore recommend the enactment of legislation to direct the commission to modify its fee schedule in order that permit fees, combined with other non-General Fund sources including reimbursements and penalties, fully cover the commission's permitting and related enforcement costs.

The implementation of this recommendation would result in General Fund savings of $5.8 million in the budget year, as this is the approximate amount of General Fund that would be replaced by additional fee revenues.

In order that permit fee and penalty revenues collected by the commission can be used to support the commission's permitting and enforce ment activities, we also recommend that the legislation delete the current-law requirement that these revenues be transferred to SCC for purposes of developing and maintaining coastal public access. As discussed above, we think that the commission's permitting and enforcement functions are appropriately supported by these particular funding sources. In addition, we find that substantial funding remains available from recent resources bond measures (Proposition 40 and Proposition 50) for SCC to improve coastal public access.

Finally, we recommend that the legislation create a special fund in the commission's budget into which the fee and penalty revenues would be deposited, with expenditures from the fund subject to appropriation by the Legislature. We think that the Legislature's oversight of, and accountability for, the use of the fees are facilitated by depositing the fees into a special fund.

As mentioned previously, the budget proposes to transfer the commission's projected $650,000 of permit and penalty revenues to SCC. If our recommendations were adopted, these revenues would be deposited in the commission's new special fund, for expenditure by the commission on permitting and enforcement.

Recommend Commission Report on Permitting and Enforcement Workload. We think that shifting funding for the commission's permitting and enforcement activities from the General Fund to fees, thereby making the commission less reliant on the General Fund, would also have the benefit of providing the commission with a more stable funding source over time. However, to the extent that increased fee revenues are used simply to replace a General Fund appropriation to the commission of the same amount, the issue remains as to whether the proposed expenditures for these activities are at an adequate level in light of the commission's workload. As mentioned previously, sizable General Fund program reductions in recent years have resulted in significant backlogs in the processing of permit and enforcement actions.

Therefore, we recommend that the commission report to the budget subcommittees, prior to budget hearings, on (1) its projected workload in the budget year to process permit and enforcement actions in a reasonably timely manner, including addressing the backlog that has developed in these activities and (2) the resources required to address this projected workload. We think that the provision of this information will assist the Legislature's evaluation of the proposed level of expenditures for the commission's permitting and enforcement functions.

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